You’ve decided to sell your rental property.
Maybe you’re looking to invest in a new area and don’t want to manage your property remotely. Or maybe the management demands are taking a toll, and you’re simply ready to retire.
Whatever the reason you decided to sell, you must complete the same steps in the sales process. If you choose to sell your property to another investor, this includes transferring your tenancies to the new buyer.
If you’re wondering how this process plays out, read on. Let’s discuss the five basic steps of transferring your tenancies when selling a rental property.
Notify Your Tenants
The first step is to notify your tenants of your plan to sell the property.
It’s best to do this as early as possible. Why? Notifying your tenants early is a courtesy, as they’ll need time to make arrangements. They may decide to move, negotiate a contract with the new buyer, or remain living in the unit as is.
In fact, many states require landlords planning to sell their properties to provide a written notice to tenants a certain number of days in advance. In Oregon, for instance, landlords must include a “lease termination due to sale clause” in their lease agreements and provide a 30-day notice to vacate in the event of a sale.
Check your state law code and local ordinances to ensure you give your tenants the appropriate heads up.
The next step in transferring your tenancies is to verify that your property has “clear title.” What this means is that there are no active mortgage liens on your property, or legal claims made against your property by your creditor.
Without clear title, the transfer of ownership of your property will not go through.
In fact, one of the first things a buyer interested in your property will do is conduct a property lien search at the escrow office or online. If they find an active lien, you may lose the buyer.
For this reason, it’s critical that you resolve any legal and financial obstacles before selling your property.
If you don’t have clear title, you have two options: you can either pay off your mortgage debt in full or negotiate with your creditor to resolve it.
At the end of this process, you should receive a finalized lien release document that you can use as proof that there are no liens on your property.
Transfer the Property Title
Now that you’ve achieved clear title, you are free to sell your property. Before you transfer your tenancies, however, you must transfer the property title.
There are five steps you must complete when transferring a title:
- Find the property deed.
- Have the deed prepared by an accredited real estate attorney.
- Review the deed and buyer’s information
- With the buyer, sign the deed in front of a public notary.
- File the signed deed with the local county records office and pay any required fees.
After these five steps, your property officially belongs to the new buyer.
Transfer Existing Leases
Now that you’ve transferred the property title, you can do the same for your existing tenancies.
This process requires substantial preparation. Here’s what you’ll need:
- All your currently active rental agreements
- Security deposit information (amounts, bank accounts, interest rates, etc.)
- Any insurance claims
- Property tax bills and returns
- A maintenance history of the property
- Utility bill information
- HOA documents
- Financial statements
Collect and provide these documents to the new buyer, as well as all other property details and tenant information. Deposits you’re currently holding should be transferred to the new buyer as well.
Remember to give tenants who choose to stay the new owner’s name and contact information should they have questions or wish to renegotiate their leases. Make sure they understand how and where their security deposit has moved, and that they are still entitled to those funds upon move-out assuming no damages.
File Your Taxes
You’ve officially transferred your title and tenancies, but you aren’t done yet.
When you sell your rental property, you also need to pay taxes on the sale. Your sold rental property depreciation is now relevant as you’ll need to calculate the amount of depreciation recapture you now owe.
Taxes are the last step in the selling process, and they can get quite complex. Be sure to consult with a tax professional who specializes in real estate so that you can ensure you file your taxes correctly.
Selling your rental property is a significant, and final, step in your real estate investing journey. By following these five steps for transferring your tenancies, you can ensure it proceeds as smoothly as possible.